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Colombo needs more, India may up aid by $2 billion

India has so far committed $1.9 billion to Sri Lanka in the form of credits for essential commodities and fuel, and also in loans and currency swaps.

By: ENS Economic Bureau | New Delhi |
Updated: April 14, 2022 6:57:18 am
Sitharaman with Lanka High Commissioner Moragoda. (Photo: Twitter/@SLinIndia)

India and Sri Lanka are in talks to explore the possibility of enhancing the assistance provided by New Delhi in the form of credits for essential commodities and balance-of-payment support to the crisis-hit island nation.

India has so far committed $1.9 billion to Sri Lanka in the form of credits for essential commodities and fuel, and also in loans and currency swaps. Union Finance Minister Nirmala Sitharaman met Sri Lanka’s High Commissioner to India Milinda Moragoda Wednesday to review the status of Indo-Lanka economic cooperation as Colombo enters negotiations with the IMF for an economic adjustment programme.

Reuters reported Wednesday that India “is willing to commit up to another $2 billion in financial assistance to Sri Lanka…as New Delhi tries to regain ground lost to China in recent years.”

The agency quoted a senior government source as saying that Sri Lanka’s warning on Tuesday of defaulting on debt payments was a worry but that “we can still give them up to $2 billion in swaps and support”.

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Reuters quoted another source “familiar with Sri Lanka’s thinking” that it was seeking India’s help to roll over some $2 billion in dues, such as those owed to the South Asia-focused Asian Clearing Union. The source “said the response had been positive from India,” the agency reported.

The issue of New Delhi extending bridging finance required by Colombo until its economic adjustment programme with the IMF was negotiated was also discussed, which could potentially make India the first country to support Sri Lanka in this manner, a statement from the High Commission of Sri Lanka in India said.

Explained

Debt default, political limbo

The Lanka economic crisis unfolds amid a political limbo. A new FM and a central bank Governor are in place for talks with lending agencies even as a new Cabinet is not in.

On Tuesday, the Sri Lankan government had said it is suspending its repayment of foreign debt, including bonds and government-to-government borrowing, pending the completion of a loan restructuring program with the IMF to deal with the unfolding economic crisis in the island nation.

The likely stepping up by India comes in the wake of China extending a $1.3-billion loan and a $1.5-billion-yuan denominated swap to Colombo post the pandemic, with more credit lines from Beijing reportedly in the works.

When contacted on the issue by The Indian Express, Finance Ministry officials did not offer any comment .
In January 2022, India had extended a $400-million currency swap to Sri Lanka under the SAARC Framework and to defer an Asian Clearing Union settlement of $515.2 million until May 6, 2022.

A new Line of Credit of $500 million was extended to Sri Lanka by the government for importing fuel from India. In addition, India has extended a credit facility of $1 billion for the procurement of food, medicine and other essential items from India.
Sri Lanka is struggling with plummeting foreign reserves and an estimated $25 billion in foreign debt due for repayment over the next five years.

“In this context, High Commissioner Moragoda and Minister Sitharaman discussed how India could assist Sri Lanka in garnering international support to secure bridging finance…The High Commissioner briefed the Minister on the debt standstill announced by the Government of Sri Lanka. He informed her that the Sri Lankan authorities are seeking a consensual agreement on debt restructuring,” the statement from the Lankan High Commission said.

The discussion was also focused on how India could play an expanded role in promoting accelerated growth and development in Sri Lanka in the medium term. Officials from the two countries are engaged in discussions to establish a cooperation framework and to monitor the progress of economic co-operation, the statement said.

The Presidential Advisory Group on Multilateral Engagement and Debt Sustainability, Governor of the Central Bank and the Secretary to the Treasury are engaged in these discussions representing Sri Lanka while India is represented by the Chief Economic Advisor of the Government and the Economic Affairs Secretary.

The ministerial delegations from India and Sri Lanka are likely to meet next week in Washington DC on the sidelines of the IMF meetings.

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